Thursday, 13 November 2014

Solar panels, the payback period

It's actually quite hard to find figures for domestic solar panels online, presumably as they want you to call and have a rep over to try and persuade you to hand money over rather than learn the truth on your own and shut the door tightly.

Gradually information dribbles out, through other people's enquiries and TV, and a rare article in the papers, and eventually I think it's possible to present a definitive formula for how long a customer will take to profit from a solar array, which doesn't really matter on the size as the saving is proportionate.

I will assume an average £10,000 cost for simplicity, which is fairly typical for a domestic array. There are a few steps involved in a basic up front deal, where the customer carries the entire cost and then gets paid by the government (currently ten times the market price) for the power they create and don't use. Then I will remove these subsidies, as without them the profit appears not to exist, so in fact what they are saving per year is mainly made up from everyone else's taxes on their energy bills which are then redistributed to renewable subsidies.

Step one: You spend £10,000 on a solar array (including the inverter). Optional batteries (almost as much on top) will allow usage for a short time after it gets dark but not part of the equation.

Using simple cost accounting you have made an investment, no different from any other. It is not a cash investment as you can get those back, but a depreciating asset like a car or a computer. Therefore it is a one way street, once bought then you have no alternative to win the deal by living in the same house until the money balances out and then the profit comes.

Step two: Accounting principle two, money today is worth more than money tomorrow. That is why all investment accounts pay interest and the further ahead the more they pay. This means a solar array which breaks even in a decade or more will have lost you the annual interest for at least ten years so the money you make does not really count after you break even as it's eaten at least another year after you nominally catch up to cover the lost interest from having to spend all that money in one go instead of gradually over the period.

Step three: You then need to compare your total period owning solar panels when they expire (15-20 years or so) with your identical power use on your previous system. You must calculate the exact amount spent not up front but monthly or quarterly for that period had you not had the solar panels, and then subtract what you actually ended up with (bills plus payments) for your bottom line. Then it has to be adjusted for inflation, as your solar array was paid for up front, and then you waited a year for a fraction back until if you were lucky you broke even. Otherwise you get your power in credit and pay after you've used it. That is not affected by interest or inflation as you only pay the equivalent £10,000 on power in instalments without the interest, explaining why you have to take it off for solar as you have lost at least a decade's interest or change in value by paying now and not as you use it.

Step four: To be genuinely honest you can't compare the market run power companies with subsidies from the government which pay ten times more per KwH than you would otherwise. It's not even your money, the government have skimmed it off everyone else to encourage people to buy solar, even though they've just spent an entire decade's typical bills in one go. Once you've subtracted the subsidies you will see that without them no solar domestic customer could ever make a profit, as the little power they generate (10-15% of domestic requirements maximum) means you only pay 10-15% less for the actual power assuming you're in when it's happening (ie during the day when most people are working), as it can't at night. Unless you fill a room with batteries, and that costs pretty much what you save so cancels out anyway.

Therefore standing alone, spending £10,000 or so on non-storage real time solar, you can't save more than 10-15% off your bill through what little they may generate when it's light enough, you'll never be able to use them at night when the lights go on or in the winter for long when you need the heating the most. It's physically not possible. So although I've demonstrated that waiting a decade or more for solar to even pay back before adjusting what the money spent now with the savings over spreading it out is economic lunacy, even that is almost totally made up of the massive profits you make on the few watts they produce each day when there's no one home. But not from actually creating power you use instead of from the grid. Ever.

Of course you can add even more panels if you want more power, but look at how much it will cost you then. There's no way round this one. Even as things stand you have spent a decade's energy bills up front with absolutely no guarantee you'll ever see it again, and even if you do it'll be well down from inflation. And take away the subsidies and a profit is impossible, how could you get it from saving power alone when if you're lucky you'll save 10% a year after spending ten year's worth up front? And many locations can't manage that, so won't get much back from subsidies either as there won't be enough excess to register.

You can't rearrange these figures besides the two future potential variations, a maximum doubling of solar efficiency and an economy of scale reduction in panel prices. But the same rules always apply, you pay in advance for power you may not get, and only make a profit while governments continue taking your fellow citizen's money to do so. And that's not real business is it?


1) £10,000 spent before any power is generated.

2) Annual return = up to 10-15% saving plus subsidised sales of excess.

3) Assuming returns are maximum (rather than average) you could ideally get the amount back over 7 years but that does not represent a typical installation.

4) Remove the subsidies, reducing your payments by 90% (for the great majority paid ten times per watt as the going rate).

5) Calculate exactly what you would have spent on power for the same period without solar and subtract the difference. Did you make a profit or a loss? This will vary per house as no two locations have the same amount of sunlight, but you'll then know for sure, and you almost certainly won't like the answer.

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